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Unconfirmed Reports of a Real Estate Bailout Fund
Multiple sources including Redd Intelligence reported that China is planning to set up a “real estate stabilization” fund, and considering the issuance of special bonds for “shanty area renovation” (棚户区改造). The plan is currently under the State Council’s review. Source: Redd Intelligence and the Internet.
Qi’s comments: None of these are confirmed by the government, or reported by the Chinese media. However, I think something similar will be announced soon. The real estate problems are worsening by the day, and China need to act fast to stop the problems from spreading.
The bailout fund could be targeted at resolving the recent mortgage boycotts, or providing direct financial support to the real estate developers, among others. Regardless, this should prevent a wider financial crisis, and more importantly, the related social unrest.
The bailout fund is reportedly being set up by China Construction Bank (CCB, a commercial bank) and the People’s Bank of China (PBoC, the central bank), rather than the PBoC alone. It shows China wants to solve these problems with a more market based approach (even though CCB is also state owned).
The “shanty area renovation” refers to the urban renewal of underdeveloped areas (slums) in small cities. It has worked well historically as a real estate driver and consumption stimulus. The special bond issuance should provide the financial boost needed to kick off these projects.
What the real estate market need ultimately is confidence, not just money. The initial capital injection (by the government) can help to restore the confidence.
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